One of the biggest questions for all people considering the profession of mediation is, “Can I make money being a mediator?” Many people look at mediation and say that it would be wonderful to become a mediator. This is especially true for litigators looking at the siren song of not having to get into discovery disputes, fighting with opposing counsel, and constantly being in fight or flight mode.

While I can safely say that I truly am glad that I switched professions to full time mediation. I must warn that mediation is not for the faint of heart. In fact, I recently saw a law journal article written by Urska Velikonja entitled “Making Peace and Making Money: Economic Analysis of the Market for Mediators In Private Practice.” The article, which I will discuss and summarize further sheds some troubling light for those that are considering the practice of mediation.

Right off the bat, the author starts with a scary point for new mediators. She explains,

“To this day, making mediation a full-time career remains extremely difficult….For virtually all successful private mediators, mediation is a second or third career; most are in their fifties or older.”

To many, making mediation a second career may not be so bad, except when you read on. She continues to state:

“More interestingly, of those who decide to become mediators, eighty percent cannot make a living solely as mediators.” Fifteen Percent keep busy, make a living, but never quite break through.”

Ms. Velikonja argues in her article that the mediation market is similar to that of entertainers or professional sports figures. In other words, few mediators make a lot of money, and the rest are like starving actors or musicians: barely making a living. She explains this as a “winner take all” environment.

There are many factors that affect why there is a winner take all environment for mediation. First, “mediation remains a choice that is more often than not a result of a judicial or legislative mandate than of party choice….63% of companies and 73% of Fortune companies” went to mediation because of court mandated programs. Nevertheless, making a living for mediators is difficult in both jurisdictions that mandate mediation and jurisdictions that don’t.

Another factor is the fact that there are few formal barriers to entry as a mediator. Unlike other professions that require extensive education, there is no standard criteria used to become a mediator. Moreover, mediation is perceived “as very emotionally rewarding” and “fun.” As such, “there are a lot more mediators than there are mediation jobs. One mediator observed that as the mediation business doubles, the number of people wanting to be mediators quadruples.”

According to Ms. Velikonja, “more than 100,000 people have received some sort of mediation training….Of those trained, relatively few actually practice mediation and even fewer make a living as a full-time mediators.”

Based on Ms. Velikonja’s research, “the vast majority of people who enter the mediation market drop out within two years.” Of those who persist, about 8,500 earn $56,000 or more per year from mediations. Most of those jobs, however, are salaried position with government agencies, and large private corporations. The government hires around 2,000 mediators. Where the courts are referring mediations, however, the mediators are typically in private practice.

The exact number of private practice mediators is difficult to accurately assess. There are an estimated five to ten thousand private practice mediators throughout the country. “According to a [Florida] court administrator [which has the largest court connected mediation program,]” out of 5,377 registered mediators, “probably ten percent of the state’s registered mediators do ninety percent of the work.”

According to the article, “of the few thousand mediators in private practice who are able to mediate full-time, the majority earn $50,000 or less.” Less than a thousand gross $200,000 or more per year. “Only a couple of dozen or so mediators…are able to consistently bill over $1,000,000 per year.” It is interesting to note that one of the premier mediation organizations, International Academy of Mediators, only has a membership of approximately 140 members. As a prerequisite, mediators must be nominated to membership and must be acting as a full time neutral, having conducted several hundred of mediations. Given that the average full time mediator probably only does about 100 mediations a year, this requirement could take five or six years to achieve. As such, this membership number demonstrates that very few make a comfortable living at mediation.

Why do so few mediators make money? First is the issue of supply and demand. Private demand amongst consumers for mediation has been “underwhelming.” “In a survey of New Jersey residents only 2 out of 400 respondents mentioned mediation as a possible means of resolving disputes, and neither spoke positively about it. The study suggests that American citizens are committed to litigation.” Moreover, a large percentage of disputes are mediated in free public programs further reducing the demand for paid mediation services.

On the supply side, there is an overwhelming supply of mediators. As noted above, there is a low threshold for becoming a mediator. According to Ms. Velikonja, the “profession trains too many people for jobs that do not exist.”

Another important question is why is there such a steep difference in income between mediators? According to Ms. Velikonja, it is because of the characteristics of the mediation labor market. The mediation market is a winner take all market instead of a slow development of the labor pool. In the winner take all market, pay depends upon performance and not based upon typical criteria, such as education and productivity. In the winner take it all markets, the best performers make a lot of money, but the second best only make a fraction of that money. “The difference in pay received by the star of a Broadway show and her understudy is almost always far more than proportional to the differences in their ability to sing and dance.”

Another reason for the stark difference is the fact that success breeds success. Only a small percentage of cases can justify higher fees. The small circle of mediators get called to help on those cases because they have a solid track record and have good name recognition. Furthermore, in high stakes cases it is easier for parties to agree on using a mediator with a well known reputation rather than an untested mediator. “This way, if mediation fails, [the parties can say] they tried everything to avoid litigating.”

Another reason is that lack of homogeneity in mediation. One of the main requirements for a perfectly competitive market is homogeneity in the products. In other words, the competitors are about the same and thus can compete. The mediation market does not satisfy that requirement. There is no homogeneity in the mediation market. Top mediators do not compete with second tier mediators, and so on. According to Ms. Velikonja, “a good mediator is hard to describe and is usually referred to as ‘you’ll know it when you see it.’” According to Ms. Velikonja, based on the description of what are good mediation skills, “very few of them can be taught in mediation training class….Although mediation training is necessary to become an effective mediator, hands-on experience is the most important factor predicting high settlement rates.” Thus it becomes a catch 22: Without having mediated cases, people won’t use you and you can’t mediate cases because the people won’t choose you.

It is also important to note that since mediation is a very personal service, “there is virtually no demand for junior mediators, and there exist few opportunities to gain experience and exposure to practice alongside seasoned mediators…”

Another thing that is important for mediators to understand is that there is a huge defacto barrier to the entrance in the profession. “Many top mediators…spent five or more years mediating before they finally broke even, let alone made good money.”

Implications for Mediation Training

There are implications for training organizations and for mediations.

First, mediation training organizations must let would be mediators know of the difficult mediation market. The over optimism and the failure to disclose the difficult market contributes to the problem in mediation market. Trainers should have a pre-mediation training meeting where they disclose all the reasons why someone should not go into mediation.

Second, would be mediators must recognize that the business of mediation is a business, like any other business. It is one thing to say, “boy wouldn’t it be nice to be a mediator than it is to say, I am a full time mediator.” The same is true in acting. It would be nice to be Tom Hanks, but most people probably don’t remember Bosom Buddies and all the other things he did to be Tom Hanks. Being a financially successful mediator takes hard work, effort, perseverance, and dedication; and even then it may not work.

According to the Inc. Magazine, 80% of new businesses fail within the first five years; many of which are in the first year. According to one article, the top seven reasons a business fails are as follows:

You Start the Business For the Wrong Reason

Poor Management

Insufficient Capital

Location, Location, Location

Lack Of Planning

Overexpansion

No Website

Think about these reasons before you start the path of mediation. Are you going into mediation because you are tired of litigating or because you love mediation? Do you have the business management skills and dedication? Is the grass greener? Do you have enough money to last five years without making any money? Are you in a location that can support a full time practice? What is your business and marketing plan? After you have answered these questions, then you may be ready to commence the long and arduous path of trying to become a full time mediator.